TEAM MEMBERS : AKSHAY WAGLE (115) DURGESH KESARKAR(52) SHAYAN KHAN(53) SHREEKANT DAGA(19) SRINATH SUBRAMANIAN(100) VISHAL AGRAWAL(4)

The fourth most important tool at all time, in terms of its impact on human civilization
-survey by Forbes Magazine

Types of pencils

Wooden pencil

Mechanical pencil

 Writing

instrument market valued at Rs 28 bn demand for branded products

Increasing

Extensive

sales & distribution leading to increased penetration

Pens Source: BIC Group Investor Relations Department Report, January 2009 Pencils 15% 6%

Segment sharewriting instruments

Others

79%
4

Indian SSI/SME sector

Accounts for major share of the stationery market
But in the pencil industry it produces around

Stationery Market Organised sector Unorganised sector 27% 73%

5 million gross pencils every year which is a small proportion of the total production
It is a growing segment increasing its share in the

market

Market Trends
Growth of organised book retailers Shift in focus from inexpensive to quality products Entry of foreign brands in Indian market driving the

organised segment 5

 Staedtler Faber

set up their business in 1989

castell set up their business in 1998

Concept of brands evolved in Indian Market because of the competition faced from the above mentioned foreign companies which led Indian companies like Hindustan Pencils to add core values to their recognized labels Apsara and Natraj and consequently turn into brands.

 The The

peak demand for pencils begins in June

major manufacturing season lasts from January to April, the products are in transit in May and on the shop shelves by June segment has remained the single largest user of pencils Pencils is the leader
7

Academic

Hindustan

There is sizeable demand from the specialized segment too. E.g. drawing, glass marking and cosmetic pencils such as liners and shades Faber-Castell, Mitsubishi and Conte are major brands which are outsourcing or setting up overseas manufacturing facilities in South-East Asia or in India With a high-tech product, the pencil industry, for all its simplicity, has gone through a phase of consolidation Multinationals are setting up manufacturing facilities overseas

Forest certification in India still at nascent stage No forests in India are certified except 644 hectares of private rubber plantations in Tamil Nadu To promote forest certification, WWF has advocated a "step wise approach which the Union govt of India will implement soon
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 Supply

side

To gauge the impact of retailer margin on sale of

mechanical pencils
Demand

side

To determine if there is any shift in preference

from wooden pencils to mechanical pencils

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11

Wood used for pencil

Not all wood can be used for pencil industry, only the soften one is suit for pencil making, --Cedrus deodara (cedar) - Juniper Virginiana (red cedar) - Calocedrus decurrens(Incense-cedar) - Pinus Sibirica - Pinus Koraiensis - Linden Wood (Basswood) - Alnus

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Flow chart of pencil making

Wood logs Pencil blocks Pencil slats Treat with chemical

Making grooves in to the slats Fixing of graphite in to the grooves

2nd grooved slat pasted

Compressed Separation of pencil Pencil is painted
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Pencil manufacturing process

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Description of Mechanical Pencil

Gripping Assembly A Mechanical Pencil Measures: - 5.5 inches in length - 0.5 inches in diameter

Barrel Assembly

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Cost of raw materials (wood, graphite, clay, brass or aluminium for ferrules, lacquer components, etc.) Cost of parts or other finished components used to assemble the pencil Cost of transportation and handling of various materials used and of the finished product to the factory

Cost of labour and benefits for the factory workers employees

Cost of energy Cost of supplies used to maintain equipment Cost of government regulations Cost of capital Cost of management

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The quality of product they wish to produce will impact which raw materials and component parts they will purchase Alternative suppliers for raw materials Whether to make internally or buy externally different component parts like slats, leads, ferrules and erasers or even semi-finished pencils from other pencil manufacturers Where to locate their pencil factories The quantity of product to produce drives the level of investment required in the factory and inventories as well as can effect the cost per unit produced due to economies of scale A constant cost industry i.e. because each firms long run average cost curve does not shift up or down as industry output changes The long run supply curve for a constant cost industry is horizontal
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 Pencil type included is mechanical pencils Data type used: Primary; Gathered near Fort Area

from retailers on quantity sold and current margin; Judgemental statistics on quantity sold if margin is tweaked
To avoid heteroskedasticity, data collected from

only one area

A data point excluded to maintain a certain scale

of operation
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 Supply side data collected from retailers because Supply can be calculated only at the last sale point
Before that the supply is merely routing through the physical distribution system Hence gauging supply of pencil with the single most important factor for the seller at that point; i.e. sellers margin Demand is held constant since change in retailer margin does not affect it
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#1 Objective: To test if there is any change in quantity sold if margin is decreased by 2 Null: There is not much difference in quantity sold; caused by the margin Alternate: There is much difference in quantity sold; caused by the margin

#2 Objective: To test if there is any change in quantity sold if margin is decreased by 1 Null: There is not much difference in quantity sold; caused by the margin Alternate: There is much difference in quantity sold; caused by the margin

#3 Objective: To test if there is any change in quantity sold if margin is increased by 1 Null: There is not much difference in quantity sold; caused by the margin Alternate: There is much difference in quantity sold; caused by the margin

#4 Objective: To test if there is any change in quantity sold if margin is increased by 2 Null: There is not much difference in quantity sold; caused by the margin Alternate: There is much difference in quantity sold; caused by the margin
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 Decision

rule: Accept Null if Chi^2calculated is <= Chi^2 tabulated Tabulated Statistic (29, 95%) is 42.557 Degrees of freedom is 29 Area in right tail is 5% i.e., Will reject in 5% cases Significance level = 5% Confidence level = 95%
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#1 Decision: Null Rejected Calculated statistic = 314 Managerial Outcome: A decrease in margin by 2 decreases quantity sold significantly

#2 Decision: Null Rejected Calculated statistic =167 Managerial Outcome: A decrease in margin by 1 decreases quantity sold significantly

#3 Decision: Null Accepted Calculated statistic = 21.4349817 Managerial Outcome: A increase in margin by 1 does not increase quantity sold significantly

#4 Decision: Null Accepted Calculated statistic = 40.8516484 Managerial Outcome: A increase in margin by 2 does not increase quantity sold significantly

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#1 Key take away: Chi square value is huge If margins are to be decreased by 2 many retailers tend to lose interest in selling and will stop stocking (Qualitative response)

#2 Key take away: Chi square value is relatively huge If margins are to be decreased by 1 few retailers tend to lose interest in selling and will stop stocking (Qualitative response)

The supply remains relatively inelastic for those retailers at higher margins. The supply tends to be perfectly elastic at lower margin levels.
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#3 Key take away: Chi square value is comparatively smallest If margins are to be increased by 1 a bottle neck might arise somewhere in the PDS (Based on data scrutiny and logical application)

#4 Key take away: Chi square value is near rejection point If margins are to be increased by 2; it still does not help in increasing sales substantially Futile activity (Based on data scrutiny and logical application)

Manufacturers Cost Value addition from production

Manu factur ers Margi n

Distribu tors Margin

Wholesalers Margin -

Retailers Margin

Price Analysis of a Pencil (Based on notion)

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Step 1
Collect data of monthly sales of mechanical pencils and there

respective margins Collect data (judgment of retailer) on sales of mechanical pencils if margins were to be increased/decreased by 1/2

Step 2
Find mean quantity sold at current margin level and the other four

scenarios Reasoning for usage of means rather than original 30 values The means improved the R square; More importantly use of means removed the size of operation bias for retailers; The equation does not change significantly; The data set is still represented; The data becomes fit for analysis

Step 3
Plot the mean values on the scatter diagram and find the trend

line Supply of pencil = Independent supply Coefficient + Margin Coefficient (Margin at last sales point)
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Quantity sold at varied margins 40 y = 3.5939x + 27.798 35 R = 0.932 30

24.4 25
19.23333333 33.5862069 31.63333333 30.13793103

Quantity sold at varied margins Linear (Quantity sold at varied margins)

20

15
10 5

0
-3 -2 -1 0 1 2 3
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Change in Margins Quantity Sold

-2
19.23333

-1
24.4

0
30.13793

1
31.63333

2
33.58621

Supply of pencil (testing at last sale point) = Margin Coefficient (Change in margin at last sales point) + Independent supply Coefficient

y = 3.593x + 27.79

Contrast of actual values and values obtained by substituting margins in the equation Analysis of regression line at lower margins Managers Decision Dont Change the Current Margin levels Analysis of regression line at higher margins

The margin elasticity is high at reduced margins, hence reducing margins is not favorable

The margin elasticity is low at higher margins, hence increasing margins is not favorable

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28

 Null

Hypothesis

Lack of awareness is not a major cause for lesser

than expected number of beneficiaries subscribing to Rajiv Awas Yojana (RAY)

Alternative

Hypothesis

Awareness is a major cause for lesser than

expected number of beneficiaries subscribing to Rajiv Awas Yojana (RAY)

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Responses to the questionnaire of 32 people from the LIG and EWG was collected

Status of ownership of television and cable connection was also sought

30

Step 1

Applying weights to the responses for the above questions 5- Strong willingness to subscribe to RAY once informed 4- Moderate willingness to subscribe to RAY once informed 3- Neutral (Null Hypothesis) 2- Moderate unwillingness to subscribe to RAY once informed 1- Strong unwillingness to subscribe to RAY once informed

Step 2
Calculating mean and standard deviation of the sample

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 Step

Applying z-test of hypothesis Comparing the calculated and tabulated values of

z at 10% level of significance

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Sample size Population Mean Sample Mean Sample Std. Deviation

32 3 3.65 1.13

Calculated z Tabulated z @ 10%

3.253943 2.33
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Decision

We reject null hypothesis since calculated z (> tabulated z

Managerial Outcome
Less number of subscribers of the Rajiv Awas Yojana (RAY) is a reflection of limited awareness of the scheme among the target segment LIG and EWG

Key takeaways
Govt. needs to initiate awareness measures to increase the subscription to RAY Television is the most important medium to carry these awareness messages as television ownership was found to be 100% in the sample population

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 Step

Collect data of monthly home sales registration in

Mumbai from July 2010 to November 2012 Collect data of Base rates (HDFC) applicable on home loans during the same period
Step

Plot the values in a X-Y chart and consequently

the trend line

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8000 7000 6000

Monthly Home Sales

5000
4000 3000 Series1 Linear (Series1)

2000
1000 0 7 7.25 7.5 7.75 8 8.25 8.5 8.75 9 9.25 9.5 9.75 10 10.25 10.5

y = -463.55x + 9316.6 R = 0.4284

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Demand for Residential Homes in Mumbai

Y = -463.55x + 9316.6

Coefficient of Determination
R^2 = 0.4284

Analysis
Since R^2 >0.05, there is a significant relationship between sale of residential homes and lending rates

Managerial Outcome
There exists a significant inverse relationship between lending rates and residential home sales. High interest rates affect demand for residential homes and Rate cuts are effective means to boost demand
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38

To gauge if external environment factors has affected demand for pencils in general

40%

19%
19% 22%

Strongly Agree Neutral Disagree Agree

59% of the respondents feel that technology has had an impact on the consumption of pencils in general
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To compare demand for each type of pencil

44%

28% 28%

Wooden Mechanical Both

72% of the respondents use mechanical pencils which shows a rising preference for the same
40

To check if the demand is price elastic

33%
67%

Agree Disagree

Among respondents preferring wooden pencil, 67% would continue to use wooden pencil even if price difference is marginal implying demand for mechanical pencils is price inelastic
41

To know frequency of purchase of mechanical pencils

3% 3%

13% 47% 34% 0-1 1-2 2-3 >4 N/A

Around 81% of the respondents who use only mechanical pencils consume within 3 leads which implies it is cost effective and efficient
42

To know frequency of purchase of wooden pencils

11% 11% 45% 22% 11% 0-1 1-2 2-3 3-4 >4

Around 56% use more than 3 wooden pencils per month

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0% 7% 29% 64% 0-1 1-2 2-3 >4

14% 21% 36% 22% 7%

0-1 1-2 2-3 3-4 >4

Mechanical leads/quarter

No of pencils /month

For students using both type of pencils we can see that usage of wooden pencils of more than 4 shows a sharp decline from 45% to 14% implying the effectiveness of mechanical pencils
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Consumption of:
Raw Materials

Wooden vs. Mechanical pencil

Wood pencils require four times more raw materials than the plastic pencil. However , the wood pencil consumes less than half the non-renewable resources as the mechanical pencil. The wooden pencil consumes approximately 60% of the water used by the mechanical pencil. The wooden pencil requires approximately the same amount of energy as required by the mechanical pencil.

Water

Energy

Wooden vs Mechanical pencil

Atmospheric Emissions
The wooden pencil results in emissions less than or equal to those of the mechanical pencil for carbon dioxide, nitrogen oxide, sulphur oxide, and particulate matter. The wooden pencil emits 5 to 6 times more carbon monoxide than the mechanical one. The wooden pencil emits about 10% of organic pollutants of the mechanical pencil.

Waste water effluents

The wooden pencil emits insignificant quantities of waste water pollutants; emissions of BOD and suspended solids are greater for mechanical pencil.

Wooden vs Mechanical pencil

Solid Waste
The wooden pencil generates less net process solid waste requiring disposal and less post consumer waste than the mechanical pencil. The wooden pencil generates more solid waste a greater proportion of this solid waste is later recycled into various products.

Hazardous waste

The wood pencil generates significantly less hazardous waste than the mechanical pencil.

The production factors (mainly man, machine, and material) are required to be maintained Government banning graphite will lead to the loss of a lot of jobs

Employers, employees, suppliers, the local businesses, energy suppliers, miners, machinist, shippers and producers all suffer which causes a ripple in the economy
The Governments decision to promote Green Pencils creates an industry for China because of absence of such an industry in India Each individual macro economy affects the next micro economy which affects the next and so on

Retailer margins for mechanical pencils should remain unchanged Since there is higher elasticity at lower margin levels, margins of retailers at low end should not be tweaked

There is an opportunity to reduce margins which are currently slated to be high

A new branded market for mechanical pencils is on the rise Since there are environment costs associated with mechanical pencils, a new market could be created for eco-conscious pencils Complementary goods like sharpener will be affected by the rise of mechanical pencils
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Economics Paul Samuelson Economics: A Contemporary Introduction William McEachern The Marketing Whitebook 2011-2012 Statistics for Management Levin and Rubin www.pencil.com http://articles.economictimes.indiatimes.com/2011-0826/news/29931612_1_forest-management-t-r-manoharanforest-certification
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THANK YOU
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